User Account

All Pages

Case Let, Other Engineering

Assignment Help:
This case has been framed in order to test the skills in evaluating a credit request and reaching a correct
decision. Perluence International is large manufacturer of petroleum and rubber-based products used in a
variety of commercial applications in the fields of transportation, electronics, and heavy manufacturing.
In the northwestern United States, many of the Perluence products are marketed by a wholly-owned
subsidiary, Bajaj Electronics Company. Operating from a headquarters and warehouse facility in San
Antonio, Strand Electronics has 950 employees and handles a volume of $85 million in sales annually.
About $6 million of the sales represents items manufactured by Perluence. Gupta is the credit manager at
Bajaj electronics. He supervises five employees who handle credit application and collections on 4,600
accounts. The accounts range in size from $120 to $85,000. The firm sells on varied terms, with 2/10, net
30 mostly. Sales fluctuate seasonally and the average collection period tends to run 40 days. Bad-debt
losses are less than 0.6 per cent of sales. Gupta is evaluating a credit application from Booth Plastics, Inc.,
a wholesale supply dealer serving the oil industry. The company was founded in 1977 by Neck A. Booth
and has grown steadily since that time. Bajaj Electronics is not selling any products to Booth Plastics and
had no previous contact with Neck Booth. Bajaj Electronics purchased goods from Perluence
International under the same terms and conditions as Perluence used when it sold to independent
customers. Although Bajaj Electronics generally followed Perluence in setting its prices, the subsidiary
operated independently and could adjust price levels to meet its own marketing strategies. The Perluence''s
cost-accounting department estimated a 24 per cent markup as the average for items sold to Pucca
Electronics. Bajaj Electronics, in turn, resold the items to yield a 17 per cent markup. It appeared that
these percentages would hold on any sales to Booth Plastics. Bajaj Electronics incurred out-of pocket
expenses that were not considered in calculating the 17 per cent markup on its items. For example, the
contact with Booth Plastics had been made by James, the salesman who handled the Glaveston area.James would receive a 3 per cent commission on all sales made Booth Plastics, a commission that would
be paid whether or not the receivable was collected. James would, of course, be willing to assist in
collecting any accounts that he had sold. In addition to the sales commission, the company would incur
variable costs as a result of handling the merchandise for the new account. As a general guideline,
warehousing and other administrative variable costs would run 3 per cent sales. Gupta Holmstead
approached all credit decisions in basically the same manner. First of all, he considered the potential
profit from the account. James had estimated first-year sales to Booth Plastics of $65,000. Assuming that
Neck Booth took the, 3 per cent discount. Bajaj Electronics would realize a 17 per cent markup on these
sales since the average markup was calculated on the basis of the customer taking the discount. If Neck
Booth did not take the discount, the markup would be slightly higher, as would the cost of financing the
receivable for the additional period of time. In addition to the potential profit from the account, Gupta was
concerned about his company''s exposure. He knew that weak customers could become bad debts at any
time and therefore, required a vigorous collection effort whenever their accounts were overdue. His
department probably spent three times as much money and effort managing a marginal account as
compared to a strong account. He also figured that overdue and uncollected funds had to be financed by
Bajaj Electronics at a rate of 18 per cent. All in all, slow -paying or marginal accounts were very costly to
Bajaj Electronics. With these considerations in mind, Gupta began to review the credit application for
Booth Plastics.
Question:
1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth
Plastics and give your views to increase the profit.
2. Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of
credit limit that electronics give to Booth Plastics.

Related Discussions:- Case Let

Procedures for starting and ground running of aircraft , Procedures for sta...

Procedures for starting and ground running: Before starting and ground running any gas turbine powered aircraft, several considerations must be taken into account. The first an

Grain boundary, Q.  Describe the structure of grain boundary. Ans. O...

Q.  Describe the structure of grain boundary. Ans. One phase of metal contains many grains of various orientation, the individual crystals are called grains. Thus a grain is

Modified accelerated cost recovery system , Modified Accelerated Cost Recov...

Modified Accelerated Cost Recovery System (MACRS) Although SLN is the most commonly used depreciation method in the U.S. for purpose of financial reporting, MACRS is the only

Logic gates and gate, Expertsmind.com  brings you unique solution in Elect...

Expertsmind.com  brings you unique solution in Electrical Engineering Logic GATES   Logic gates process one or more input signals in a logical manner. Depending on th

Diagonal relationship, Diagonal relationship betweent lithium and aluminium...

Diagonal relationship betweent lithium and aluminium

Case study, Which type of financing is appropriate to each firm?

Which type of financing is appropriate to each firm?

Derivative Securities, Let C(K) denote a European vanilla Call option with ...

Let C(K) denote a European vanilla Call option with strike price K. Assume that all options are identical except for strike price, and strike prices satisfy (K1) What are the no-

Ubiquitous networks, Ubiquitous network applications are generally designed...

Ubiquitous network applications are generally designed for a whole network. This notion should be reflected in the way a network is programmed. We believe that providing abstractio

Working of i.c. engine, WORKING OF I.C. ENGINE Basically there are 2 ty...

WORKING OF I.C. ENGINE Basically there are 2 types of internal combustion engines; the two stoke type and the 4-stroke type. A brief description of these is given below: 1.

Jfet operation - junction, JFET OPERATION Figure shows the operati...

JFET OPERATION Figure shows the operation of a JFET. The JUGFET has a physical structure that can be represented by the diagram shown in Figure. In Figure, if the N-Ty

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd